Whenever something goes wrong with a government program, it’s never the fault of the political leaders who created the program; blame is cast on “unscrupulous” low-level bureaucrats who failed to “honestly” implement the state’s crazy scheme. Our scapegoat du jour is Bradley J. Hansen, who resigned six years ago from his job as superintendent of a Michigan school district. The Justice Department’s Antitrust Division announced a two-count indictment against Hansen this week, citing an alleged bribe he received in connection with a federally-subsidized school contract.In 2001, Hansen, then superintendent of the Montcalm Area Intermediate School District (MAISD), signed a three-year contract with “Company A” – identified in press reports as Cassair Inc. – to provide internet services for the district’s schools for about $1.6 million. MAISD received subsidies through the federal government’s “E-rate” program to cover part of the cost. According to the district’s website, “MAISD receives a 69% discount on priority one services” due to E-rate subsidies.
E-rate itself is run by an FCC-controlled nonprofit corporation, the Universal Service Administrative Company. USAC is funded through a tax on telecommunications providers. It’s a classic wealth-transfer racket. In theory, USAC ensures “universal service” for underfunded school districts. In practice, E-rate is just another slush fund.
The feds have stolen billions to finance E-rate, but Bradley Hansen is supposedly the bad guy because of $60,000. He didn’t even steal it. Heck, it wasn’t even $60,000 in cash. According to the DOJ, Hansen accepted $60,000 worth of “free goods and services” from Cassair in exchange for awarding it the district internet contract. In a nutshell, Cassair allegedly bribed Hansen by rewiring his house for free. Oh, the humanity!
In typical DOJ fashion, Hansen’s rewiring job becomes a “conspiracy to commit offenses against the United States.” This conspiracy consisted of violating a federal anti-bribery statute (ironically codified as 18 U.S.C. § 666) and using the government’s monopoly Postal Service to mail the form to Washington applying for the E-rate subsidy on the Cassair contract.
Under a libertarian legal analysis, Hansen has committed no crime. First, he actually paid the $60,000 to Cassair for the rewiring. The DOJ said this happened nearly two years after the contract was awarded – and Hansen only paid after the school board started asking questions – but at the end of the day, he did not receive services for free.
The more substantive problem, however, is whether the initial offer wrongly induced Hansen to back Cassair’s contract. The DOJ’s position is that Hansen violated “a duty to MAISD and the citizens of Michigan to provide them with his honest services in carrying out his job responsibilities.” The “honest services” test is inherently problematic, as I discussed in relation to a similar charge against former Illinois Governor Rod Blagojevich. Although this case deals with an employee under contract, as opposed to an elected constitutional officer, the same basic problem remains; namely, federal prosecutors have no right to decide whether a local official is rendering “honest services” in the performance of his duties. That is the function of the school board and other state officials.
But let’s address the subject head-on. Did Hansen deprive MAISD of honest services? It’s not clear that he did – at least from the indictment. Hansen’s job was to procure internet services. He did that. There’s no allegation that Cassair failed to deliver on what it promised. Indeed, the company is still under contract with MAISD. This wasn’t a case where the superintendent embezzled money by paying a fake contractor for services that were never rendered. The contract itself was subject to the approval and oversight of the school board.
Obviously, the board would have acted differently if Hansen disclosed his free rewiring job. He probably would have been fired on the spot and Cassair would not have received the contract. This still doesn’t rise to the level of fraud, however. MAISD was not deprived of its property without consent, at least with respect to the Cassair contract. The fraud occurred with respect to Hansen’s employment contract with the school district. But that’s not a proper subject of federal criminal jurisdiction.
The only other count of the indictment charges Hansen with “obstruction,” because he allegedly lied to an Antitrust Division attorney about the reason he waited two years to pay Cassair the $60,000. The libertarian position on this type of “derivative crime” has been explained by William Anderson and others. Lying to a government official – particularly when the person is not sworn or voluntarily under oath – does not constitute an act of aggression.
Hansen’s alleged malfeasance is just a symptom of the real problem, and that’s the continued existence of the E-rate program. The Antitrust Division has an entire “task force” and grand jury devoted to E-rate fraud. That should tell you something right there. Even the political higher-ups acknowledge the program is a nightmare. A 2005 report issued by the House Energy and Commerce Committee reached the following conclusions about E-rate:
* The FCC’s three key oversight mechanisms for the E-rate program – rulemaking procedures, beneficiary audits, and reviews of USAC decisions (i.e., appeals decisions) – are not sufficient to manage the program.
* Some school districts have acquired goods and services through the E-rate program without using a formal bidding process, contrary to both the program’s rules and local regulations.
* There is no real protection from “gold-plating” or procuring technology goods and services far beyond reasonable school district needs and resources.
* Weak competition requirements and inadequate oversight allowed a group of vendors to completely manipulate the competitive process for E-rate program goods and services, without USAC detecting the fraud.
* Recently established guidelines for debarment of vendors and applicants set standards of program abuse too high, requiring first a civil judgment or criminal conviction against the participant before a suspension may occur and debarment can be considered.
* The E-rate program’s ambiguous rules and procedures, and extensive delay in the distribution of funding, create significant confusion among applicants and vendors, contributing to program waste.
The reason for all of these problems is simple. In a government-planned redistribution scheme, there is no incentive for efficiency and honest behavior. The very point of E-rate is to lavish as much money as possible on local school districts; the system rewards those who manipulate it. E-rate has no owners and no profit motive. This means nobody benefits from exercising control or oversight. In fact, there’s an incentive to encrouage abuses, since it creates a pretext for expanding the state’s prosecutorial power under the guise of “fighting corruption.” The DOJ’s E-rate task force is the prosecutor’s proof of the broken window fallacy: We need more government spending to address the problems caused by prior government spending!
{ 5 comments }
S.M. Olivia said, “This conspiracy consisted of…using the government’s monopoly Postal Service to mail the form to Washington applying for the E-rate subsidy”.
So is it now illegal to use a government service available to anyone? I wonder what other mail service Mr. Hansen could have used to further his nefarious plot than the “government’s monopoly”?
Apparently, you can use the mail, as long as the feds approve. So much for “universal access.”
This analysis is forgetting the most important part of the justice system–trial by jury. You can be accused of any crime and if the jury convicts you, you are considered guilty. It does not matter how ridiculous the accusation, if the government can find 12 people to vote for conviction, you hang.
Trial by jury is supposed to be a protection, but in high profile or politically charged cases it is a joke. Was Kenneth Lay guilty of what he was convicted of? Nope. But the jury wanted blood and voted to convict him of nebulous things they probably could not hope to understand. Is Rod Blagojevich guilty of something? Nope. His defensive maneuvering is based upon process–a jury will convict him just to strike a blow for fuzzy concepts of truth, justice, and the American way.
Ultimately the government gets away with its high handed concepts of prosecuting for political purposes because juries back them up. If juries laughed prosecutors out of court rooms for unjust cases, these cases would not be presented any more. The crux of the problem is juries.
“This analysis is forgetting the most important part of the justice system–trial by jury.”
I didn’t forget it, and I agree with your analysis. But in cases such as the one I described above, the DOJ generally managed to coerce a guilty plea before the case even gets to a jury. Indeed, I’d be mildly surprised if Mr. Hansen doesn’t enter such a plea before a trial can begin.
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